Consumer confidence and retail sales in Indonesia are increasing, suggesting positive prospects for consumer spending in 2024 and 2025. Easing inflation and robust economic growth are leading to improved purchasing power and employment opportunities. A strengthening rupiah and government policies are expected to further boost consumer spending.
Key View: Consumer confidence and retail sales growth in Indonesia are on the rise again, suggesting positive prospects for consumer spending in 2024. Falling inflation is increasing purchasing power, while robust economic growth is leading to improved employment opportunities. The consumer spending outlook for 2025 is even more upbeat on the back of an expected strengthening of the rupiah that will allow for monetary policy loosening and a further easing of inflationary pressures, which will lead to stronger real wage growth.
Consumer Spending Outlook For 2024 & 2025
We expect a small deceleration in real consumer spending growth in Indonesia in 2024 to 5.0% y-o-y, as income growth remains muted, monetary policy remains tight and the currency weakens. However, this is still a solid figure that will be supported by the strong economy and boosted consumer purchasing power as a result of reduced inflationary pressures. Real consumer spending, measured at 2010 prices, is set to reach IDR7,012.6trn in 2024.
In 2025, real consumer spending growth is forecast to accelerate to 5.2% y-o-y to take total spending (at 2010 prices) to IDR7,376.9trn. Inflation will ease further, which will allow for stronger real growth in household incomes. Interest rates will decline, reducing the pressure on indebted consumers and making credit-fuelled consumption more appealing. The rupiah will strengthen, lowering the cost of imported consumer goods and stimulating spending. Finally, the economy is expected to gather momentum on the back of the incoming president’s growth-supportive stance and plans to significantly loosen fiscal policy to raise government spending.
Indonesia is gearing up for a favorable shift in its economic landscape as easing inflation promises to boost consumer spending. Over the past year, inflationary pressures have been a notable concern, affecting the purchasing power of the average Indonesian. However, recent data indicates a downward trend in inflation rates, providing a more stable environment for consumers. This reduction in inflation is expected to translate into increased discretionary spending, injecting vitality into the domestic market.
The ripple effects of easing inflation are already becoming apparent across various sectors. Retailers, in particular, are poised to benefit as consumer confidence rebuilds. Lower inflation rates mean that essential goods and services become more affordable, leaving households with extra disposable income. This surplus is likely to permeate through non-essential categories such as leisure, entertainment, and luxury goods. As a result, businesses are anticipated to experience a surge in demand, thereby creating a positive feedback loop that stimulates economic activity.
Moreover, with the Indonesian government implementing supportive fiscal policies, the consumer outlook remains optimistic. Tax incentives and subsidies aimed at reducing living costs further amplify the impact of waning inflation. This concerted approach by policymakers not only nurtures immediate consumer spending but also fosters long-term economic resilience. In summary, Indonesia’s easing inflation paves the way for a more robust consumer spending landscape, contributing to a healthier, more dynamic economy poised for sustained growth.
Source : Indonesia Consumer Outlook: Easing Inflation Will Support More Robust Spending Growth